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Did IRS Target Israel? Suit By Pro-Israel Z Street Will Move Forward

Z Street is a non-profit corporation dedicated to educating the public about various issues related to Israel and the Middle East. The education is from a particular viewpoint:

educating the public about Zionism; about the facts relating to the Middle East and to the existence of Israel as a Jewish State; and about Israel’s right to refuse to negotiate with, make concessions to, or appease terrorists

The organization applied for exempt status as a 501(c)(3) organization on December 29, 2009. The lawsuit which names the IRS Commissioner as defendant is not about whether or not the organization qualifies. Rather it is about the process that the IRS has been using to grant or deny the exemption. Here is a representative of the organization talking about the process in an interview last year.

In recent decision, Judge Ketanji Brown Jackson of the United States District Court For The District of Columbia has denied IRS motions to dismiss the suit. Judge Jackson was nominated by President Obama in 2012 and confirmed by the Senate in 2013.

Z Street apparently learned about the “Israel Special Policy” from IRS Agent Diane Gentry who was handling Z Streets exemption application. Agent Gentry was concerned that Z Street was planning to engage in “advocacy” activities that are not permitted under 501(c)(3). More significantly, Agent Gentry indicated that the IRS had “special concerns” about organizations whose activities related to Israel that held positions that contradicted the current policies of the US Government. According to Z Street Agent Gentry indicated that

…these cases are being sent to a special unit in the DC office to determine whether the organization’s activities contradict the Administration’s public policies.

The Argument For Dismissal

The IRS arguments for dismissal are very lawyerly – the anti-injuction act, failure to state a claim, sovereign immunity. I would boil it down to the idea that the organization has a right to sue, in a couple of different ways, to get the IRS to grant it exempt status or override an IRS decision to not grant it, but that it does not have the right to sue about the specifics of what goes on in the IRS arriving at its decision.

To be fair, it is worth noting that sometime in 2010, Z Street could have sued to force the IRS hand in making a decision to grant exempt status.

It’s The Principle Of The Thing

Of course, none of that would get at the “viewpoint discrimination” in the IRS process which is a First Amendment issue. That is what the Judge Jackson focused on.

The only matter at issue in the instant lawsuit is whether, in addition to evaluating Z Street’s activities as it would any other organization’s, the IRS may constitutionally apply a more stringent standard of review that is allegedly reserved for organizations whose activities relate to the promotion of Israel. And because a negative answer to that question would not automatically ensure that Z Street (or any other Israel-related organization) will receive the tax-exempt status for which it has applied, the remedy sought in this lawsuit has no direct effect on the public fisc, and certainly not one that would impact the Treasury or otherwise affect the agency’s assessment and collection

Suit Will Proceed

Because this Court does not accept Defendant’s core contention that Z Street seeks a determination of whether or not it is entitled to Section 501(c)(3) tax status through this action-which underpins each of Defendant’s grounds for dismissal-the Court rejects Defendant’s assertions that the AIA, the DJA, or sovereign immunity bars Plaintiff’s request for equitable relief and that Plaintiff has an adequate remedy at law. Accordingly, Plaintiff is correct that it is permitted to press its constitutional claim in federal court, and Defendant’s motion to dismiss the complaint must be DENIED.

Let Them Collect Taxes

This lawsuit much like Teapartygate confirms me in my view, that the evaluation of whether an organizations purposes should allow it exempt status is not something that the IRS should be doing. There are credits for historic buildings, but it is not the IRS that decides whether the buildings are historic. The same principle should apply here.

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The article does not discuss the standards for 501(c)(3) status that excludes lobbying, political and other services that would justify denying 501(c)(3) tax exempt status. The IRS computers are geared to surfacing income tax issues likely to create a disallowed expense (example: the home office deduction). Thos are TARGETED ISSUES. The IRS historically targets tax issues for examination.

Under this historic precedent, it is not unseemly for the IRS to target organizations that are likely to engage in lobbying activity. In the case of the Tea Part, they were targeted because most of them promote political activities that are excluded from exempt status under 501(c)(4).

“Targeting” is what the IRS has always done. This article does not take that into account. The job of the IRS is to enforce tax law enacted by Congress. The IRS resources are limited. It is expedient for the IRS to target tax issues. In the case of pro-Israel organization, is it more likely that their activities are largely devoted to “lobbying.” an activity precluded under 501(c)(3)? That is a judgement call, but it is done under examination standards.

It is my view that the IRS cannot do its job efficiently without targeting specific issues like tainted lobbying or political activities.

In my own defense, I was reporting on the decision, but, of course, have the blogger’s impulse to find a catchy, provocative headline.

I think the contention that Z Street is making is that the IRS is basing its targeting on the content of the advocacy with the notion that an organizations with views that corresponded with the administration’s would be treated differently.

The Tea Party situation is a little different, they were clearly trying to affect the outcome of elections and deserved to be targeted for that reason. It might be that even if the IRS were totally evenhanded, that might have had a disproportionate impact making the enforcement effort suspect. It gets a little confusing. The Republicans are trying to illegally buy elections, so the Democrats decided to enforce certain laws extra zealously. That is the stuff of political hardball. Unfortunately a very important agency, with a very important job ends up being sucked into that fight and distracted from its primary job. There is a disproportionately influential piece of the Republican party that wants to pretty much destroy the what the federal government has become in the last century or so, so an IRS that can’t do its job is just fine with them.

“It is my view that the IRS cannot do its job efficiently without targeting specific issues like tainted lobbying or political activities.”

However, the IRS is not supposed to “Target” based upon beliefs or positions held by the group in question. And that is what this suit is about, it’s not about asking the court to do the IRS’s job in making the determination of 501c3 eligibility.

And if you read the article, you know that the suit is not about the group arguing what actions it MIGHT take or whether it’s appropriate to be denied on those grounds, but rather about being subject to the same evaluation process as other groups without “Israel” in their name.

In a way the Z St Zionists + Peter J Reilly – who is apparently in their camp – are correct. The IRS should not make the decision about Z Street acting as an agency of a foreign power, to propagandize its beliefs within the former United States; the State Dept should make that decision. Just as with AIPAC and moves are afoot to affirm that AIPAC is the agency of a foreign military power – also alleged by some to be the number one state-sponsor of terror globally – and to strip AIPAC of its undeserved tax exempt status. The very idea that US taxpayers must subsidize any entity engaged in genocide and ethnic cleansing versus an indigenous people to propagandize the actions of that authority’s repugnant regime should not be within the remit of US public subsidy. After all, imagine a group wished to to do the same for example propagandizing ISIS within the former USA as 501C3…. ! What would the “Zionists” reaction to that be?